Defence Stocks in the Eye of the Israel-Iran War

Defence stocks are rising as the Iran-Israel conflict continues, while the possibility of US involvement remains in the balance.

Gains Amid Conflict Uncertainty

For over a week now, and missile bombardments, with no sign of the conflict de-escalating. The initial reaction in the markets saw crude oil prices and some defence stocks rise due to the fear of immediate escalation, as Iran threatened US installations for aiding Israel. However, in the following days, it became apparent that the conflict remained contained, with some analysts speculating that the initial reaction was an exaggeration. Uncertainty persists about when the conflict will end and how it will impact markets, particularly as it appears that a turning point may be reached between Friday and Saturday.

Iranian officials are expected to meet with European leaders in Geneva to resolve the issue that supposedly started the war: Iran's nuclear ambitions. While Israel has attacked several of Iran's nuclear facilities, as well as other military and infrastructure targets, the enrichment site at Fordow remains operational. The question, as far as escalation is concerned, is whether the US will join Israel’s efforts to destroy that facility. It appears that US President , but he is waiting for a last-minute diplomatic solution, as reportedly before the weekend. Trump insists that the only acceptable solution is a complete dismantling of Iran's nuclear ambitions. If a diplomatic avenue isn't reached soon, he could opt for a military solution that would be interpreted as an escalation of the conflict.

Gauging Market Reaction

A deal in Geneva would likely offer relief to the markets but would come at the cost of the recent gains experienced by defence firms. On the other hand, if the US joins the war, increased tensions are expected to , possibly a more pronounced move than the one seen last Friday when the conflict began. The conflict is expected to remain areal, which indicates suppliers of missiles and aircraft to Israel could continue to witness gains as the battle persists.

The F-35 fighter has been noticed, as Israel appears to have gained air superiority over Iran in a matter of days. Iran claims to have and captured two pilots, while Israel says it hasn't lost any jets. Lockheed Martin, with support from BAE Systems, manufactures the multi-role fighter and may use its performance over Iran as a selling point to future buyers. The company's stock price has increased by 2.5% since the conflict began. More crucial to Lockheed's future, however, is US defence spending, which is projected to increase with the .

Lockheed Wedge Could Go Either Way

Despite rising 2.5% since the conflict erupted, Lockheed Martin has formed a wedge pattern in a bearish market, pending a potential breakout near the $460 area. Using the measured-move projection from $420 to $480, a bearish move would initially open the door to the $400 level, where support might form. However, if $450 or any higher support level holds firm, the wedge could be of the rising type, initially suggesting a breakout past $490 and towards the $550 handle. This would bring into focus the all-time high of $615, at which point the stocks lost momentum and initiated the bearish leg.

Source: SpreadEx / Lockheed Martin

Key Takeaways

The ongoing Israel-Iran conflict has led to a rise in defence stocks, particularly those involved in supplying missiles and aircraft to Israel, with the possibility of US involvement still uncertain, but with President Trump considering military action. A deal in Geneva would likely offer relief to the markets and impact the recent gains of defence firms. Lockheed Martin, which manufactures the F-35 fighter used by Israel, has seen a 2.5% increase in stock price since the conflict began. However, its prospects are also tied to potential increases in US defence spending.